There’s nothing worse than signing a fixed-term contract and getting stung with unexpected costs well above your budget. Unfortunately, builders can legally bump up a ‘fixed’ price in several ways.
Here are three components to watch out for before signing your name on the dotted line.
Escalation Clauses
WARNING: Builders can pass the cost of increased labour and materials onto you.
With the ongoing impacts of COVID-19, the construction industry has been hit hard with labour and material shortages, shipping delays and high inflation rates. As a result, houses are taking up to 12 months longer to complete and during that time, building costs can go through the roof (pun intended).
Instead of builders covering these costs, they’re relying on escalation/fluctuation clauses into contracts. When reading the fine print, be cautious of phrases such as ‘This Price May Change’ or ‘Estimate only’ when referring to changing labour and material prices. The words may be small, but the invoices won’t be.
Provisional Sums (PS)
WARNING: Provisional sums can end up costing significantly more than the estimated amount.
A provisional sum is an estimated price for work that cannot be determined at the time of entering a contract. Take earthworks and excavation, for example. Builders can provide a quote for the job, but unforeseen complications may arise once they start digging.
The difference between the provisional sum and the total cost of the job will then fall onto you.
A range of components can be listed under provisional sums, so it’s important to understand the potential costs, risks and outcomes of each one. Don’t be afraid to do your own research and question the accuracy of an estimated price before agreeing to it.
Variations
WARNING: Contract prices can increase if you request a change to the original scope of work.
Decisions can be hard at the best of times, but knowing what you want can eliminate or minimise the cost of variations. Take bathroom tiles, for example.
You might sign a fixed-term contract for basic white titles to be installed, but once you see them on the wall, you change your mind and prefer the look of the fancier tiles. This change of heart could leave you paying an extra couple of grand to cover the increased price of materials and labour. Remember that 'small' changes can make a big difference.
Not all variations are bad, but if you’re considering adding one, make sure you discuss the specific scope of work and costs with the builder. Changes must be agreed upon in writing, so remember that you always have the right to research, ask questions, negotiate prices, and change your mind. Don’t get sucked into signing anything you’re unsure about.
We understand reading the fine print is not everyone's cup of tea, especially when there are 50 to 100 pages of it. Building contracts are often written in favour of the builder, so hiring a property lawyer is the best way to protect your buyer's rights.
The team at Queenstown Law have the expertise to review contracts, spell out the fine print, negotiate prices and clauses, and find ways to make the contract more reasonable. The devil is in the detail, and the quality is in the contract. Come and visit us today to learn more about how we can help.
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